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Reservation Wages and Work Arrangements: Evidence From The American Life Panel

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Abstract

This study relates the rise of alternative work arrangements, particularly among older workers, with low reservation wages, a result of low bargaining power brought on by decreased attachment to career jobs and growing retirement income inadequacy. I utilize a linked sample between the RAND-Princeton Contingent Worker Survey and the American Life Panel's Health and Retirement Study, to estimate reservation wages via a two step process. I first estimate market wages on offer for non-employed people, then estimate the gap between market and reservation wages via a probit explaining probability of employment. I first confirm that my estimations for reservation wages follow expected patterns as exemplified in Hofler and Murphy (1995)'s 'seven tests.' I then show that work in alternative work arrangements (on-call, temp agency, contract firm and gig work) is associated with a decrease in reservation wages of $4.47- $4.53 per hour, whereas work as an independent contractor or self-employed worker is associated with increased reservation wages by $3.72-$3.89 per hour. Whereas prior literature focuses on firm-centric explanations for an increase in alternative work, these findings point to supply-side factors which also contribute to an increase. Proposals to reform established surveys to better track work arrangements and policies to increase financial preparedness for retirement are discussed.

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  • Michael Papadopoulos, 2020. "Reservation Wages and Work Arrangements: Evidence From The American Life Panel," SCEPA working paper series. 2020-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    • Handle: RePEc:epa:cepawp:2020-01
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    Cited by:

    1. Retirement Equity Lab, 2020. "Older Workers Know They Face An Unfriendly Labor Market," SCEPA publication series. 2020-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.

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    More about this item

    Keywords

    alternative work; bargaining power; retirement; wages; labor;
    All these keywords.

    JEL classification:

    • J29 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Other
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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